Home inFocus Ideas for a New Congress (Winter 2015) Republican Ideas to Fix Obamacare

Republican Ideas to Fix Obamacare

Paul Howard and Yevgeniy Feyman Winter 2015

Six years after President Obama and the Democratic Party swept into power, the tide has changed dramatically. The new Congress counts 247 Republican representatives and 54 Republican senators, with the House netting 13 more seats and the Senate adding 9. While neither House nor Senate will have a veto-proof majority (two-thirds of both chambers are required to override a presidential veto), the Republican Party has seized control of the Senate and expanded its majority in the House to its highest level since 1931.

The Democrats have taken a political thrashing, courtesy of a resounding rejection of the President’s policies. The new political landscape has created the potential for Healthcare Reform 2.0—as long as Republicans play their cards shrewdly.

To begin, Republicans need to temper their enthusiasm. They don’t have enough votes to “repeal” Obamacare and have yet to coalesce around a single plan to “replace” it. However, they can pass popular, meaningful — yes, even bipartisan — reforms that can set the stage for wholesale health care reforms if they manage to seize the White House in 2016.

But they will also need to educate voters on their health care principles and priorities, and contrast them with an Obama administration that has played fast and loose with the truth when politically convenient. Indeed, President Obama has squandered an enormous reservoir of bipartisan good will in his six years in office. To govern effectively, Republicans must repair some of that institutional damage to enact and sustain consequential reforms.

From Tactics to Strategy

Some would have you believe that Conservatives have no ideas to help “[bring] care to the uninsured, or those with pre-existing conditions.” It’s one of the New York Times editorial board’s favorite memes.

It’s also patently untrue: at least 40 major bills or proposals have been generated by the House and Senate to replace or amend Obamacare. Republicans simply haven’t coalesced around one comprehensive replacement. Part of the reason was (and is) tactical. Republicans hoped that the Supreme Court or the 2012 presidential election would effectively overturn the law before it was implemented. And any plan Republicans championed would have created winners and losers, a reality Democrats would have gleefully publicized. (Obamacare, of course, created its own set of winners and losers — and arguably far more of the latter — but they have largely been obscured by the fiscal and legislative gimmicks used to pass the law, now better understood thanks to Obamacare architect Jonathan Gruber.)

Yet isolated tactics must eventually give way to unified strategy.

Here, Republicans will have to acknowledge — as their own philosophy dictates — that incremental reforms are preferable to sweeping changes to the status quo that would leave millions of Americans, now with Obamacare coverage, suddenly thrust into entirely different arrangements. In 2014, 6.7 million Americans enrolled in and paid for private plans through Obamacare’s state- and federally-run insurance exchanges. And while polls show that the law remains unpopular, a large plurality of Americans would still rather see the law fixed than repealed. Republicans shouldn’t attack the president for not allowing Americans to keep coverage they liked, then simply substitute their own preferences for current enrollees.

None of this, however, means that Obamacare isn’t ripe for significant change.

Take the exchanges. While second-year premium increases are hovering under 10% according to PricewaterhouseCoopers, such averages mask substantial plan variations. Many of the plans with last year’s low bid — garnering market share because of it — are steeply increasing premiums for 2015. New entrants, as well as some established players that didn’t do well last year, are lowering rates to attract price sensitive consumers.

Are these trends sustainable? Probably not. Premiums don’t yet reflect actual costs in the market. Insurers are only now seeing a full year of data on enrollee costs on which to base prices; 2015 premiums were, more or less, shots in the dark.

This problem is likely to come home to roost in 2016 (for the 2017 policy year), when two important federal backstop payments to insurers end. Henceforth, insurers will have to stand on their own. If risk pools don’t look great by then, significant premium increases are inevitable. (One already sees insurers taking steps to avoid adverse selection: tightly reining in provider networks, excluding specialty hospitals and academic medical centers, and imposing high coinsurance on pricey drugs for HIV, cancer, and Hepatitis C. Chronically ill patients may want more provider choice, especially specialists, and better drug coverage.)

Obamacare’s looming premium crunch presents an opportunity for the new GOP Congress to champion reforms to help lower premiums, improve competition on exchanges, and add greater transparency. (Travelocity-like health insurance exchanges still don’t exist.)

What Would Patient-Centered Reforms Resemble?

Here, conservatives can draw from the best of their own proposals, as well as from smart reforms advocated by moderate Democrats.

Last January, Senators Coburn (OK), Burr (NC), and Hatch (UT) released the “Patient CARE Act (PCA),” which proposed deregulating Obamacare’s exchanges in favor of targeted patient-centered reforms. The plan would have eliminated many Obamacare regulations on insurance policies, while leaving in place key consumer protections (i.e., for pre-existing conditions).

This is a good place to start. Consumers should be able to trade off benefits they don’t need or want for wider provider networks. And people who don’t receive much (if anything) in subsidies may prefer the lower premium that accompanies a lower actuarial value plan if they can assume more risk out-of-pocket (this approach has been supported by moderate Senate Democrats and Independents). Repealing Obamacare’s taxes on insurers, drug companies, and medical device manufacturers should also help bring down premiums.

Furthermore, although Obamacare claimed to be a “universal coverage” proposal, the Congressional Budget Office estimates that about 30 million Americans will still lack health coverage even after its full implementation in 2024. Instead of first focusing on coverage, the CARE Act proposes to direct attention to reducing costs, increasing affordable choices like Health Savings Accounts, thereby guiding federal spending towards a more sustainable path. On top of this, the legislation reforms the broken Medicaid program, creates continuous coverage protection, and more aggressively reduces a distortion in the tax code that was deemed to artificially inflate health care costs. Limiting the tax advantage of employer-sponsored coverage can help finance additional subsidies for the poor — placing more low-income Americans into private insurance, instead of the broken Medicaid program.

Congress can also offer employers greater freedom to vary premiums to encourage health conscious behavior, encourage the adoption of national telemedicine systems, and create true transparency on state and federal health insurance exchanges.

Our colleague Avik Roy, in his plan Transcending Obamacare, proposes a number of these approaches as well, which would reduce the cost of insurance compared to Obamacare by shifting more enrollees into high-deductible plans (with HSA-contributions from the government offering financial protection). These plans would make health insurance more like true insurance, with coverage for expensive, unpredictable events, as opposed to routine expenses, which drives up cost and clogs the system with needless paperwork.

Another widely supported bipartisan reform would repeal Obamacare’s infamous employer mandate, which requires companies with more than 50 full-time workers to provide health insurance. House Republicans have already ventured down this path, passing the Save American Workers Act of 2014. The bill, which has not been taken up by the Senate, would weaken the mandate by redefining “full-time” to mean 40 hours, instead of the law’s 30 hours. This would represent an improvement as it would remove disincentives to hiring part-timers and eliminate incentives to cut work hours (cutting full-timers’ hours is likely less ideal for businesses).

Better still would be to repeal the mandate entirely, ending disincentives to expand beyond 49 workers. (Politically, such a reform faces one critical obstacle: it would strip the law of about $150 billion in revenue over 10 years, hurting its deficit neutrality. This means that a repeal of the mandate would need to be accompanied by another revenue raiser or cost-reduction, but other reforms — like competitive bidding for Medicare Advantage plans, pushing up the Cadillac tax by a year or two, or limiting premium subsidies — may generate similar savings, while also putting Medicare on more sustainable footing.)

The key is to advance such reforms through small, stand-alone legislation that accomplish important policy goals.

Embrace State-Led Health Care Innovation

Another of Obamacare’s most serious shortcomings was that it left governors and states on the sidelines while the bill was being drafted and passed. Congress can now address this by incorporating successful state-based reforms.

Republican governors have proposed certain far-reaching health care reforms, including a form of “loser pays” medical malpractice reform in New Hampshire. Other states have moved more able-bodied Medicaid enrollees into private insurance, and have required them to seek work in return for benefits (à la welfare reform).

Conservatives have supported numerous reforms to break up hospital monopolies and introduce market competition into health care services and delivery, too. With more Americans gravitating to high-deductible plans on Obamacare exchanges, smart regulatory reforms present a terrific opportunity to make health care more patient- and consumer-friendly.

In short, Conservatives can choose from a wide range of thoughtful, substantive reforms to help make insurance more affordable and improve health care for millions of Americans — even without replacing Obamacare root and branch.

As President Obama once noted, elections have consequences. President Obama’s signature domestic policy achievement, Obamacare, has solved some health care problems at massive cost, while leaving American health care extraordinarily expensive. Government entitlements remain on track to consume every dollar of federal revenue.

Republicans now have a rare opportunity to contrast the President’s top-down, government by fiat approach with a raft of plausible reforms that address real problems without micromanaging how employers and consumers navigate a reformed health insurance system.

Republicans need simply keep their eyes on the ball: good policy provides its own rewards, while bad policy, enacted divisively (as Obamacare was) generates lasting backlash. Incremental reforms, like repealing the employer mandate, can produce good outcomes while helping build constituencies for future reform.

The next presidential election looms just two years away. Yet while the presidency cannot be won today, it can be lost if the party overreaches or overreacts to a President prone to provoking confrontation and demonizing dissenters.

Incrementalism isn’t just good policy, it’s good politics too.

Paul Howard is a Manhattan Institute senior fellow and director of the Manhattan Institute’s Center for Medical Progress. Yevgeniy Feyman is a Manhattan Institute fellow and deputy director of the Manhattan Institute’s Center for Medical Progress.